|· financial review||· impala platinum||· zimplats||· two rivers||· investments||· mineral reserves & mineral resources|
|· market review||· marula platinum||· mimosa||· impala refining services||· exploration review|
Review of 2005
Implats' results for FY2005 reflect excellent operating and financial performances. This review of 2005 includes a financial review, a review of the market, a review of operations and exploration, and a statement of mineral resources and mineral reserves.
key features for the year
Implats' results for the 2005 financial year reflect an excellent operating performance. The gross operating margin for the group was 34%, slightly lower than the margin of 36% recorded the previous year. Headline profit of R2.86 billion was 9% higher. The 78% increase in net profit to R5.3 billion includes the profit from the sale of the investment in Lonplats of R3.16 billion, the sale of the Messina IRS contract to Lonplats for a net amount of R72 million, and an impairment of R1.03 billion less the associated deferred tax reversal of R184 million for the Marula Platinum assets.
Results for the year
Sales increased by 6% in rand terms to R12.54 billion, and in dollar terms by 18% from $1.72 billion to $2.02 billion. Of the major earnings drivers, volumes and metal prices resulted in positive variances, while the exchange rate had a significant negative variance effect on sales:
Cost of sales
Total cost of sales increased by 10% to R8.32 billion compared to R7.55 billion for the previous financial year. This was mainly due to:
The group unit cost per platinum ounce rose to R4,548, up 9.7% from the R4,144 per ounce for the 2004 financial year. The Impala unit cost per platinum ounce, which represents the majority of the business, rose by 5.3%.
Exchange rate transaction gains for the period amounted to R33 million versus a R216 million loss for the previous financial year. The applicable exchange rate for the translation of debtors/advances at 30 June 2005 was R6.66/$ compared to R6.17/$ on 30 June 2004, a weakening of 8%.
Contributions to earnings
Implats' income is derived from three distinct sources: mine-to-market operations, IRS and equity income from investments.
Impala Platinum continued to be the major contributor to earnings, accounting for 77% of headline profit for the period under review. A 16% decline in platinum production through IRS for the 2005 financial year and a forex gain of R113 million, resulted in profit from IRS increasing by 18% to R466 million. This represents 16% of headline profit, compared to 15% the previous year. The contributions from the Zimplats/Mimosa operations decreased substantially as a result of increased unrealised profit in group inventories and operating costs.
Earnings from Implats' investment in Lonplats made a final contribution to group income. Attributable income decreased to R208 million and the contribution to group earnings reduced to 7% from 11% compared to the previous financial year as this investment was only equity accounted for six months. Dividends received from this investment for the period under review totalled R35 million.
Implats' share in Lonplats was sold for an amount of R4.9 billion ($763 million). As an integral part of this transaction, R617.5 million was made available as loans to various BEE companies. These loans are repayable within five to seven years and are structured into interest-free and interest-bearing portions.
The contribution from AQP(SA) for the 2005 financial year was a negative R4 million, compared to a positive contribution of R39 million the previous year. This was a result of the operating loss recorded by the Marikana mine and higher unrealised profit in group inventories.
Headline earnings for the financial year increased by 10% to 4,325 cents per share compared to 3,934 cents in the 2004 financial year. This was mainly as a result of the 3% increase in the rand revenue per platinum ounce sold during FY2005. The effect of the decrease in the corporate tax rate from 30% to 29% announced by the South African fiscus during the period under review, allowed the company to benefit from a once-off non-cash adjustment to deferred taxation of R69.8 million.
A 10% change in the rand revenue per platinum ounce sold and received for a complete year (basket price) would result in a 30% change in headline earnings.
There was a slight decrease in the number of weighted shares in issue to 66.1 million shares, as a result of the share buy-back.
The total dividend proposed for the year is 2,300 cents per share, comprising an interim dividend per share of 500 cents, which was paid in March 2004, and a final dividend per share of 1,800 cents. This is 10% higher than the total dividend declared and proposed in the last financial year of 2,100 cents a share.
Dividend remains at 1.9 times cover on headline earnings which is in line with the board's stated dividend policy.
Balance sheet, structure and cash flow
The group generated cash from operating activities of R2.79 billion during the year to June 2005 and net cash from investing activities of R2.50 billion. After funding the group's capital expenditure programmes, dividends and investments at the end of June 2005, the net closing cash position was R3.98 billion compared to R636 million at the end of June 2004. The group acquired 1.2 million of its own shares in terms of an approved share buy-back scheme for an amount of R613.1 million.
The group will continue to examine its forward capital and investment requirements, and to balance this with its cash generative potential. Implats has maintained a strong balance sheet despite the recent strength of the rand against all foreign currencies. This has enabled Implats to fund its project pipeline. Implats, through its interests in Zimplats, Mimosa and Two Rivers, is in the process of finalising its debt financing: Zimplats, approximately R65 million; Two Rivers, R700 million (Implats' share R315 million) and Mimosa, R65 million (Implats share R32.5 million).
Assets are reviewed for impairment when a change in circumstances indicates that the carrying amount may not be recoverable. In terms of Implats' accounting policy, the recoverability of long-lived assets is derived from estimates of future discounted cash flows. These estimates are subject to risk and uncertainty, including future metal prices and exchange rates. During the year under review, exchange rates and the finalisation of a viable future mining plan at Marula indicated this would have an impact on discounted cash flows with the result that the carrying amount of the Marula project might not be recoverable and the assets could be considered impaired. As a result, an amount of R1.034 billion (R850 million net of tax) was written down as an impairment charge.
contribution by metal
Group capital expenditure amounted to R1.99 billion for the year. Capital expenditure at the Impala Platinum segment was R1.69 billion compared to R1.2 billion in the previous period. This was largely accounted for by expenditure on the decline projects and the 16 and 20 Shaft projects. An amount of R118 million was spent on Marula Platinum and R181 million on the Zimbabwean operations.
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|Impala Platinum Holdings Limited
Annual Report 2005